4 Years of Nigerian Content: Challenges Abound Despite Relative Successes

fabrication worker 1

fabrication worker 1It is impossible to argue with the fact that there have been several major achievements with regard to the promotion of Nigerian content and also that a lot success has been recorded since President Goodluck Jonathan signed into law the Nigerian Oil and Gas Industry Content Development Act (Nigerian Content Act) on April 22, 2010. However, as we will highlight briefly below, there have also been some instances which have called into question the ability of the Nigerian Content Act to adequately protect the interests of indigenous oil and gas companies. Furthermore, several local companies maintain that it is still a challenge getting access to the choice contracts awarded by the multinationals thereby creating a scenario whereby a lot of their services, factories, fabrication yards and equipment are left idle not to mention the massive amount of revenue that has been lost as a result.

 

Issues of Non Compliance

One of the core allegations that have been raised is that some multinationals have continued to violate the provisions of Nigerian Content Act through the use of expatriates, who perform job functions that Nigerians have capacity to execute. It has also been alleged that instead of resorting to the sanctions provided by the Act to enforce compliance, the Nigerian Content Development and Monitoring Board (NCDMB) instead resorts to a more collaborative or persuasive approach to get the erring multinationals to comply with the provisions of the Act.

A recent example of non compliance allegedly involved Total Exploration and Production Nigeria Ltd and its contractors Saipem and Hyundai Heavy Industries (HHI) of Korea, whom the NCDMB accused of gross violations of sections 28, 33 and 41 (2) of the Act by deploying non-compliant assets and expatriates. The NCDMB in this case however, appears to have wielded the big stick against Total by apparently stopping the company’s Ofon-2 project. The NCDMB also banned Italian engineering, construction and drilling contractor, Saipem, as well as Hyundai Heavy Industries (HHI) of Korea, the contractor for Total on the project from participating in the ongoing and future tendering processes in Nigeria’s oil and gas industry as a result of what the board called “abuse of expatriate quota and procurement processes.”

Total, on its own part released a statement denying the reports claiming it had shut down its Ofon-2 project but acknowledged receipt of a notice of non-compliance with the Nigerian Content Act, from the NCDMB, against one of its contractors, HHI. It also denied reports suggesting that there were only two Nigerians working for HHI on the Ofon-2 project. The statement further said that Total would be meeting with HHI and NCDMB to ensure a timely and satisfactory resolution of the issues raised by the NCDMB notice.

 

In Country Fabrication

Another issue relates to the amount of in country fabrication for major projects in the oil and gas industry. In particular, not enough of the integration of fabricated steel structures which go into large structures such as Floating Production Storage and Offloading (FPSO) vessels is done locally. A typical FPSO in use for each of Nigeria’s deepwater oilfields has on average a weight of more than 110,000 tonnes; a length of over 300 metres; and a width of about 60 metres. However, of this amount, only about 8,000–10,000 tonnes per vessel are fabricated in Nigeria by indigenous contractors due to the fact that the majority of the fabrication work is carried out in Korean yards by companies such as Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI).

Furthermore, the ongoing court action between Samsung Heavy Industries (SHI) of Korea and the Lagos Deep Offshore Logistics (LADOL) base is a serious cause for concern. SHI recently won the contract for the construction of the FPSO for the Egina Oilfield being developed by French oil giant, Total and the integration of the FPSO was originally planned to take place at the LADOL base in Lagos as SHI’S pre-agreed partner and indigenous logistics and oil service provider. However, at the Federal High Court, it was alleged by LADOL that SHI had sought to exclude LADOL from benefiting from the contract.

This is of particular concern as one of the policies of the NCDMB is that major oil and gas projects such as the Egina FPSO project should give rise to the construction of a legacy facility in the country for the benefit of its economy and the employment of its citizens. In this case the legacy project was the upgrade of the fabrication and integration facilities at LADOL, which the NCDMB estimated would cost between $150 million and $200 million. While the facts of the case are lengthy, it suffices to say that much of the crux of LADOL’s action is based on the fact that after the award of the contract, SHI sought to terminate the original arrangement and insisted on a re-evaluation of the in-country integration strategy by suggesting that exporting the entire work to South Korea would save $500 million and avoid a 10-month delay in project execution. The case is still currently in court and the outcome yet to be determined, but should SHI succeed in securing offshore fabrication, it would present a major test to the objectives of the Nigerian Content Act at a time of extreme unemployment in Nigeria and would also impact negatively on the aim of developing local capacity in Nigeria.

 

Discrimination and Under Utilization of Nigerian Services

There are also still complaints of discrimination and under utilization of indigenous capacity in the oil and gas industry. These allegations of discrimination have been made with particular regard to project rates and also remuneration in relation to Nigerian man hours when compared to the value of expatriate man hours. Linked to this are also allegations of the poaching of skilled Nigerian workers from indigenous firms by foreign companies in the services sector of the industry, thereby reducing the human capital base of local firms. A senior executive of a local service company recently noted that; “indigenous companies providing similar services to their foreign counterparts are paid less thereby affecting negatively their ability to sustain competent and certified personnel, especially those trained by them”. He also stated that payments for projects executed by local firms executing projects for major oil companies should be at par with what foreign contracting firms obtained.

At the Practical Nigerian Content Workshop held in Yenagoa, Bayelsa State late last year, the executives of top indigenous companies such as Oando Energy Services Ltd, Mr. Bandele Badejo and Fenog Nigeria Limited, Mr. Chukwudi Uwakwe; made appeals to the IOCs operating in the country to encourage local operators by considering them for more contracts and ensuring fair treatment for them. This is particularly the case as they had borrowed large sums from local and international banks to boost their capacities and needed to meet their obligations with their respective banks.

Legal services also appear to be an area which has suffered some neglect with regard to Nigerian content strides. Section 51 of the Act provides that all operators, contractors and other entities in any operations, business or legal services transaction in the Nigerian oil and gas industry requiring legal services shall retain only the services of a Nigerian Legal Practitioner or a firm of Legal Practitioners located in Nigeria. However, according to several prominent legal practitioners, the amount of legal instructions emanating from the industry is still considerably low despite the promulgation of the Act. With most of the notable, considerable high fee earning transactions still largely given to foreign law firms.

 

Crude Oil Lifting                                                         

Another area where there has been low compliance with the Act over the last four years is in the area of crude oil lifting. Section 3 (1) of the Nigerian Content Act stipulates that “Nigerian independent operators shall be given first consideration in the award of blocks, oil fields licenses, oil lifting licenses and in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of such conditions as may be specified by the Minister. However, up until recently, there were literally no Nigerian vessels involved in the lifting or transportation of crude oil since its discovery in commercial quantities back in 1956. There now seem to be some promising signs going forward as the Nigerian National Petroleum Corporation (NNPC) awarded the yearly crude oil lifting term contracts for 2014/2015 to mostly Nigerian companies comprising Aiteo, Taleveras, Barbedos and others, and by so doing, downsized contracts traditionally awarded to international oil traders. The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, explained that the contract awards to indigenous firms to lift crude oil were to promote even local participation in the oil and gas sector. How successful this development will be however, remains to be seen.

 

NCDMB Must Regulate Nigerian Content Issues More Fervently

As such, notwithstanding the success and achievements of the Nigerian Content Act, there are still areas that require the grave attention of the regulator and executor of the law, NCDMB as well as the Federal Government. More efforts need to be made to ensure that there is adequate oversight, monitoring and enforcement where necessary to effectively guarantee that there are no loopholes through which Nigerian jobs can either be exported or undermined.

 

*Noma Garrick is a lawyer and consultant with extensive experience in oil and gas and energy related matters.

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